Ch 11

If there is an increase in the price of apples that causes consumers to purchase fewer pounds of apples and more pounds of oranges, the CPI will suffer from a. substitution bias. b. bias due to the introduction of new goods. c. bias due to unmeasured quality change. d. base-year bias. e. none of the above

A

If workers and firms agree on an increase in wages based on their expectations of inflation and inflation turns out to be more than they expected, a. firms will gain at the expense of workers. b. workers will gain at the expense of firms. c. neither workers nor firms will gain because the increase in wages is fixed in the labor agreement. d. none of the above is true

A

The CPI will be most influenced by a 10 percent increase in the price of which of the following consumption categories? a. housing b. transportation c. medical care d. food and beverages e. All of the above would produce the same impact

A

Under which of the following conditions would you prefer to be the borrower? a. The nominal rate of interest is 20 percent and the inflation rate is 25 percent. b. The nominal rate of interest is 5 percent and the inflation rate is 1 percent .c. The nominal rate of interest is 15 percent and the inflation rate is 14 percent. d. The nominal rate of interest is 12 percent and the inflation rate is 9 percent.

A

If borrowers and lenders agree on a nominal interest rate and inflation turns out to be less than they had expected, a. borrowers will gain at the expense of lenders. b. lenders will gain at the expense of borrowers. c. neither borrowers nor lenders will gain because the nominal interest rate has been fixed by contract. d. none of the above is true.

B

Which of the following statements is correct? a. The real interest rate is the sum of the nominal interest rate and the inflation rate. b. The real interest rate is the nominal interest rate minus the inflation rate. c. The nominal interest rate is the inflation rate minus the real interest rate. d. The nominal interest rate is the real interest rate minus the inflation rate. e. None of the above is true.

B

The "basket" on which the CPI is based is composed of a. raw materials purchased by firms. b. total current production. c. products purchased by the typical consumer. d. consumer production. e. none of the above.

C

Under which of the following conditions would you prefer to be the lender? a. The nominal rate of interest is 15 percent and the inflation rate is 14 percent. b. The nominal rate of interest is 12 percent and the inflation rate is 9 percent. c. The nominal rate of interest is 5 percent and the inflation rate is 1 percent. d. The nominal rate of interest is 20 percent and the inflation rate is 25 percent.

C

Inflation can be measured by all of the following except the a. GDP deflator. b. consumer price index. c. producer price index. d. finished goods price index. e. All of the above are used to measure inflation.

D

In 1989, the CPI was 124.0. In 1990, it was 130.7. What was the rate of inflation over this period? a. 30.7 percent b. 6.7 percent c. 5.1 percent d. You can't tell without knowing the base year. e. 5.4 percent

E

Which of the following would likely cause the CPI to rise more than the GDP deflator? a. an increase in the price of Fords b. an increase in the price of tanks purchased by the military c. an increase in the price of domestically produced fighter planes sold exclusively to Israel d. an increase in the price of John Deere tractors e. an increase in the price of Hondas produced in Japan and sold in the United States

E